Carbon Collective – an online investment adviser – has decided to spread out sustainable investing by launching a climate-friendly 401K plan for employers. The fund aims to offer individual investors and employers a plan that is mission-driven and aligned with the net zero emissions transition.
Carbon Collective is a San Francisco-based startup founded in 2020 by investment experts Zach Stein and James Regulinski in an effort to address the widespread greenwashing among the ESG (Environmental, social, and governance) funds.
More than 800 funds managing $3 trillion in assets now claim they use some sort of ESG strategy. However, multiple studies and journalistic investigations have found that most of them do not live up to their environmental, social, and governance claims and, in fact, routinely undermine the climate change crisis.
Carbon Collective claims it is committed to increasing investments into climate change solutions and preventing any greenwashing practices when screening companies. Its 401(k) plan offers three investment options:
- a traditional Vanguard target-retirement portfolio;
- a Vanguard ESG portfolio;
- and Carbon Collective’s own “core climate portfolio.”
Carbon Collective portfolio offers a suite of fixed income and equity investment funds, including US Treasury and green bond index funds, a variety of low-carbon economy ETFs and the Carbon Collective “climate only” fund, which screens out fossil fuel-dependent companies and admits real climate solutions companies.
The screening process is based on the last year’s revenue of companies and how much of it came directly from fossil fuels, or fossil fuel-dependent activity. For example, General Electric is the second-largest manufacturer of wind turbines in the world, but the company didn’t get past the screen as more of its last year revenue came from natural gas and jet engine businesses.
“We do not look at climate commitments or anything like that… Because talk is very cheap in this space. We believe what you did last year is the best indicator of what you’re going to do going forward,” said Stein.
Apart from greenwashing among climate-friendly investment funds, there is also a lack of 401K plans that offer sustainable fund options. For example, Fidelity Investments oversees $3.2 trillion in retirement plans but provides ESG options to just 19.4% of its 401(k) and 403(b) plans. Empower Retirement provides custodial services to 71,000 retirement plans with $1.1 trillion in assets but offers ESG options for roughly 6,000 of those plans.
An increasing number of investors are demanding sustainable investment options from fund managers and more transparency and reliability of climate change commitments. Despite being seen as a steady investment this far, fossil fuel companies are now turning into high-risk bets due to scrutiny and climate change mitigation that should not be understated when making long-term investment decisions.